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Fair Value of Financial Instruments (Tables) | 6 Months Ended
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Jun. 30, 2020
Fair Value Disclosures [Abstract] |
Schedule of fair value measurement inputs and valuation techniques | The following tables present a summary of quantitative information about the significant unobservable inputs used in the fair value measurement of the Company’s residential whole loans held at fair value for which it has utilized Level 3 inputs to determine fair value as of June 30, 2020 and December 31, 2019:
|  | June 30, 2020
(Dollars in Thousands) |  | Fair Value (1) |  | Valuation Technique |  | Unobservable Input |  | Weighted Average (2) |  | Range
Residential whole loans, at fair value |  | $ | 677,172 |  |  | Discounted cash flow |  | Discount rate |  | 4.7 | % |  | 4.2-8.0%
|  |  |  |  |  | Prepayment rate |  | 3.8 | % |  | 0.0-8.0%
|  |  |  |  |  | Default rate |  | 5.5 | % |  | 0.0-34.1%
|  |  |  |  |  | Loss severity |  | 12.8 | % |  | 0.0-100.0%
|  | $ | 523,535 |  |  | Liquidation model |  | Discount rate |  | 8.1 | % |  | 6.6-50.0%
|  |  |  |  |  | Annual change in home prices |  | 0.2 | % |  | (4.0)-6.9%
|  |  |  |  |  | Liquidation timeline (in years) |  | 2.0 |  |  | 0.8-4.8
|  |  |  |  |  | Current value of underlying properties (3) |  | $ | 698 |  |  | $5-$4,500
Total |  | $ | 1,200,707 |  |  |  |  |  |  |  |  |
|  | December 31, 2019
(Dollars in Thousands) |  | Fair Value (1) |  | Valuation Technique |  | Unobservable Input |  | Weighted Average (2) |  | Range
Residential whole loans, at fair value |  | $ | 829,842 |  |  | Discounted cash flow |  | Discount rate |  | 4.2 | % |  | 3.8-8.0%
|  |  |  |  |  | Prepayment rate |  | 4.5 | % |  | 0.7-18.0%
|  |  |  |  |  | Default rate |  | 4.0 | % |  | 0.0-23.0%
|  |  |  |  |  | Loss severity |  | 12.9 | % |  | 0.0-100.0%
|  | $ | 551,271 |  |  | Liquidation model |  | Discount rate |  | 8.0 | % |  | 6.2-50.0%
|  |  |  |  |  | Annual change in home prices |  | 3.7 | % |  | 2.4-8.0%
|  |  |  |  |  | Liquidation timeline (in years) |  | 1.8 |  |  | 0.1-4.5
|  |  |  |  |  | Current value of underlying properties (3) |  | $ | 684 |  |  | $10-$4,500
Total |  | $ | 1,381,113 |  |  |  |  |  |  |  |  |
(1) Excludes approximately $274,000 and $470,000 of loans for which management considers the purchase price continues to reflect the fair value of such loans at June 30, 2020 and December 31, 2019, respectively. (2) Amounts are weighted based on the fair value of the underlying loan. (3) The simple average value of the properties underlying residential whole loans held at fair value valued via a liquidation model was approximately $375,000 and $365,000 as of June 30, 2020 and December 31, 2019, respectively. The following tables present the Company’s financial instruments carried at fair value on a recurring basis as of June 30, 2020 and December 31, 2019, on the consolidated balance sheets by the valuation hierarchy, as previously described: Fair Value at June 30, 2020
(In Thousands) |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets: |  |  |  |  |  |  |  |
Residential whole loans, at fair value |  | $ | — |  |  | $ | — |  |  | $ | 1,200,981 |  |  | $ | 1,200,981 |
Non-Agency MBS |  | — |  |  | 54,237 |  |  | — |  |  | 54,237 |
CRT securities |  | — |  |  | 94,106 |  |  | — |  |  | 94,106 |
Term notes backed by MSR-related collateral |  | — |  |  | 224,782 |  |  | — |  |  | 224,782 |
Total assets carried at fair value |  | $ | — |  |  | $ | 373,125 |  |  | $ | 1,200,981 |  |  | $ | 1,574,106 |
Liabilities: |  |  |  |  |  |  |  |
Agreements with non-mark-to-market collateral provisions |  | $ | — |  |  | $ | 2,036,597 |  |  | $ | — |  |  | $ | 2,036,597 |
Agreements with mark-to-market collateral provisions |  | — |  |  | 1,656,248 |  |  | — |  |  | 1,656,248 |
Senior secured credit agreement |  | — |  |  | 480,959 |  |  | — |  |  | 480,959 |
Other |  | — |  |  | 20,520 |  |  | — |  |  | 20,520 |
Total liabilities carried at fair value |  | $ | — |  |  | $ | 4,194,324 |  |  | $ | — |  |  | $ | 4,194,324 |
Fair Value at December 31, 2019
(In Thousands) |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Residential whole loans, at fair value |  | $ | — |  |  | $ | — |  |  | $ | 1,381,583 |  |  | $ | 1,381,583 |
Non-Agency MBS |  | — |  |  | 2,063,529 |  |  | — |  |  | 2,063,529 |
Agency MBS |  | — |  |  | 1,664,582 |  |  | — |  |  | 1,664,582 |
CRT securities |  | — |  |  | 255,408 |  |  | — |  |  | 255,408 |
Term notes backed by MSR-related collateral |  | — |  |  | 1,157,463 |  |  | — |  |  | 1,157,463 |
Total assets carried at fair value |  | $ | — |  |  | $ | 5,140,982 |  |  | $ | 1,381,583 |  |  | $ | 6,522,565 |
Schedule of significant unobservable inputs used in fair value measurement of residential whole loans | The following table presents additional information for the three and six months ended June 30, 2020 and 2019 about the Company’s Residential whole loans, at fair value, which are classified as Level 3 and measured at fair value on a recurring basis:
|  | Residential Whole Loans, at Fair Value
|  | Three Months Ended June 30, |  | Six Months Ended June 30,
(In Thousands) |  | 2020 |  | 2019 (1) |  | 2020 |  | 2019 (1)
Balance at beginning of period |  | $ | 1,243,792 |  |  | $ | 1,512,337 |  |  | $ | 1,381,583 |  |  | $ | 1,471,263 |
Purchases and capitalized advances (2) |  | 4,679 |  |  | 5,299 |  |  | 8,198 |  |  | 135,388 |
Changes in fair value recorded in Net gain on residential whole loans measured at fair value through earnings |  | 2,010 |  |  | 21,188 |  |  | (72,546 | ) |  | 20,128 |
Collection of principal, net of liquidation gains/(losses) |  | (28,608 | ) |  | (43,072 | ) |  | (52,412 | ) |  | (74,823 | )
Sales and repurchases |  | (18,225 | ) |  | (898 | ) |  | (18,530 | ) |  | (1,216 | )
Transfer to REO |  | (2,667 | ) |  | (56,027 | ) |  | (45,312 | ) |  | (111,913 | )
Balance at end of period |  | $ | 1,200,981 |  |  | $ | 1,438,827 |  |  | $ | 1,200,981 |  |  | $ | 1,438,827 |
(1) | Excludes approximately $87.0 million of residential whole loans held at fair value for which the closing of the purchase transaction had not occurred as of June 30, 2019.
(2) | Included in the activity presented for the six months ended June 30, 2019 is an adjustment of $70.6 million for loans the Company committed to purchase during the three months ended December 31, 2018, but for which the closing of the purchase transaction occurred during the three months ended March 31, 2019. The adjustment was required following the finalization of due diligence performed prior to the closing of the purchase transaction and resulted in a downward revision to the prior estimate of the loan purchase amount.
The following table presents additional information for the three and six months ended June 30, 2019 about the Company’s investments in term notes backed by MSR-related collateral, which were classified as Level 3 prior to September 30, 2019 and measured at fair value on a recurring basis:
|  | Term Notes Backed by MSR-Related Collateral
|  | Three Months Ended June 30, |  | Six Months Ended June 30,
(In Thousands) |  | 2019 |  | 2019
Balance at beginning of period |  | $ | 753,594 |  |  | $ | 538,499 |
Purchases |  | 353,970 |  |  | 573,136 |
Collection of principal |  | (4,392 | ) |  | (8,976 | )
Changes in unrealized gains |  | 2,854 |  |  | 3,367 |
Balance at end of period |  | $ | 1,106,026 |  |  | $ | 1,106,026 |
Schedule of carrying value and fair value of financial instruments | The following table presents the carrying values and estimated fair values of the Company’s financial instruments at June 30, 2020 and December 31, 2019:
|  | June 30, 2020 |  | June 30, 2020 |  | December 31, 2019
Level in Fair Value Hierarchy | Carrying Value |  | Estimated Fair Value | Carrying Value |  | Estimated Fair Value
(In Thousands)
Financial Assets: |  |  |  |  |  |  |  |  |  |
Residential whole loans, at carrying value |  | 3 |  | $ | 4,676,530 |  |  | $ | 4,651,188 |  |  | $ | 6,069,370 |  |  | $ | 6,248,745 |
Residential whole loans, at fair value |  | 3 |  | 1,200,981 |  |  | 1,200,981 |  |  | 1,381,583 |  |  | 1,381,583 |
Non-Agency MBS |  | 2 |  | 54,237 |  |  | 54,237 |  |  | 2,063,529 |  |  | 2,063,529 |
Agency MBS |  | 2 |  | — |  |  | — |  |  | 1,664,582 |  |  | 1,664,582 |
CRT securities |  | 2 |  | 94,106 |  |  | 94,106 |  |  | 255,408 |  |  | 255,408 |
MSR-related assets (1) |  | 2 and 3 |  | 254,228 |  |  | 255,036 |  |  | 1,217,002 |  |  | 1,217,002 |
Cash and cash equivalents |  | 1 |  | 666,172 |  |  | 666,172 |  |  | 70,629 |  |  | 70,629 |
Restricted cash |  | 1 |  | 7,680 |  |  | 7,680 |  |  | 64,035 |  |  | 64,035 |
Financial Liabilities (2): |  |  |  |  |  |  |  |  |  |
Financing agreements with non-mark-to-market collateral provisions |  | 2 |  | 2,036,597 |  |  | 2,036,597 |  |  | — |  |  | — |
Financing agreements with mark-to-market collateral provisions |  | 2 |  | 1,656,248 |  |  | 1,656,248 |  |  | 9,139,821 |  |  | 9,156,209 |
Senior secured credit agreement |  | 2 |  | 480,959 |  |  | 480,959 |  |  | — |  |  | — |
Securitized debt |  | 2 |  | 516,102 |  |  | 498,114 |  |  | 570,952 |  |  | 575,353 |
Convertible senior notes |  | 2 |  | 224,563 |  |  | 202,465 |  |  | 223,971 |  |  | 244,088 |
Senior notes |  | 1 |  | 96,887 |  |  | 89,551 |  |  | 96,862 |  |  | 103,231 |
(1) | Includes $29.4 million and $59.5 million of MSR-related assets that are measured at fair value on a non-recurring basis that are classified as Level 3 in the fair value hierarchy at June 30, 2020 and December 31, 2019, respectively.
(2) | Carrying value of securitized debt, Convertible Senior Notes, Senior Notes and certain repurchase agreements is net of associated debt issuance costs.

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- Definition Tabular disclosure of the fair value measurement of assets using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets) and gains or losses recognized in other comprehensive income (loss), and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issues, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs), by class of asset. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=117815213&loc=d3e19279-110258 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -Subparagraph (c) -URI http://asc.fasb.org/extlink&oid=117815213&loc=d3e19207-110258 + Details
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